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TMI Blog1988 (10) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... mount itself was in doubt. There was therefore no justification or question of taking credit for the interest accrued on such doubtful advances. It was also submitted that as and when the recoveries were effected, these were credited in the books of account and taken as income. In other words, the submission made on behalf of the bank was that in respect of this interest the method of accounting employed by the assessee was cash basis but in respect of other advances it was accrual basis. The Income-tax Officer rejected these contention by relying upon an order passed by the Tribunal, Delhi Bench 'D' in the assessee's own case in respect of the assessment year 1977-78. It was pointed out that it was not possible from the way accounts of the bank were maintained to bifurcate its money-lending transactions into two categories, specially when in its accounts it has charged interest on accrual basis in respect of both categories of advances, namely, good advances and sticky advances. Even though it was claimed that interest on sticky advances was not to be regarded as income yet the bank did charge interest even in respect of those doubtful advances to keep the amount out in separate r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal was by the Income-tax Officer and that was against the assessee. 4. Be that as it may, in the further appeal filed against this order, the Departmental Representative contended that the matter has been finally concluded by the decision of the Supreme Court in the case of State Bank of Travancore which was a judgment affirming the judgment of the Kerala High Court and also the Calcutta High Court decision referred to earlier, which was later on in James Finlay & Co. v. CIT [1982] 137 ITR 698. Relying upon this judgment, the learned Departmental Representative pointed out that the Supreme Court has categorically pointed out that interest on sticky advances had accrued according to the mercantile system of accounting and the assessee had debited the respective parties with the interest earned a certain amount which had accrued as interest without treating it as a bad debt or irrecoverable interest but keeping it in suspense account was repugnant to section 36(1)(vii) read with section 36(2) of the Income-tax Act, 1961. An argument was raised before the Supreme Court that it is only the real income that should be brought to tax and in a case of this nature, the real income would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore it is incorrect to state that pending litigation, the right to receive interest accrued to the bank so as to force to compute the income and offer it for taxation. He also relied upon the circular of the board, which the Commissioner (A) had referred to in his order and pointed out that since a circular issued by the Board was binding upon the officials working under the Board, the Commissioner (A) was right in acting on instructions given by the Board and the officials working under the Board, the Commissioner (A). It has been repeatedly held by the Supreme Court that the circulars issued by the Board are binding upon all the officers employed in the execution of the Income-tax Act.. It does not therefore lie in the mouth of the department to contend that interest had still accrued to the assessee when according to the circular issued by the Board interest is not to be included for the purposes of taxation. That was how the argument proceeded. 6. On a careful consideration of all these arguments, we are of the view that the matter is finally concluded and settled by the decision of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102. We do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, then the notion of real income, i.e., making the income accrue in the real sense of the term, can be brought into play but the notion of real income cannot be brought into play where income has accrued according to the accounts of the assessee and there is no indication by the assessee treating amount as not having accrued. Suspended animation following inclusion of the amount in the suspense account does not negate accrual and after the even of accrual, corroborated by appropriate entry in the books of account, on the mere ipse dixit of the assessee, no reversal of the situation can be brought about. (iii) The concept of reality of the income and the actuality of the situation are relevant factors which go to the making up of the accrual of income but once accrual takes place and come accrue, the same cannot be defeated by any theory of real income. The concept of real income cannot be so used as to make accrued income non-income simply because after the event of accrual, the assessee neither decides to treat it as a bad debt nor claims deduction under section 36(2) of the Act, but still enters the same with a diminished hope of recovery in the suspense account. Extension of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fference so long as the accounts of the parties were debited. The accounts of the parties were debited in both the cases. Therefore, there is no difference in facts between the case before the Supreme Court and the case before us. The circular issued by the Board, which was relied upon by the Commissioner (A) did not say that in respect of doubtful debts the interest credited to the suspense account would not be subjected to tax. The circular pointed out that though such interest would be brought to tax but the interest so charged in an account where there has been no recovery for a certain period, would not be subjected to tax in the fourth year and onwards. In the circular given by the Indian Banks Association, again, it will be seen that it was categorically pointed out that the question of taxing interest would arise only where the bank charges the interest to the borrower's account for whatsoever reason and on whatsoever consideration but only where interest was not charged, the question of taxing such interest on technical grounds would not arise. This means, that if interest was charged on the borrower's account whatever may be the reason, that amount would be brought to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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